Ex-Banker Du Ordered to Pay Insider Gains to Investors

Former Morgan Stanley managing
director Du Jun was ordered to pay HK$23.9 million ($3.1
million) to investors who sold him shares in 2007, for which he
was jailed for trading with inside information.

Hong Kong High Court Judge Peter Ng’s order yesterday
benefits about 300 investors in Citic Resources Holdings Ltd. (1205),
the Securities and Futures Commission said in a statement. The
payments represent the profit they could have made had the
inside information been known.

The restoration orders are the first by a Hong Kong court
in an insider dealing case. Du, who bought shares of the Chinese
commodities trader after learning of a plan to purchase an
oilfield while he was helping it sell bonds, was convicted in
2009. The SFC last year won a similar court order using the same
legal provision known as section 213 on behalf of investors in a
flawed initial public offering.

“We expect to see more frequent use by the SFC of section
213 to achieve compensation for investors in a variety of
situations in which there has been market misconduct in the
broadest sense,” said Martin Rogers, a Davis Polk & Wardwell
LLP disputes partner in Hong Kong who wasn’t involved in the
case. The legal provision allows the commission to sue and seek
remedies on behalf of investors.

Assets Frozen

A Beijing native, Du worked for Morgan Stanley (MS) in Hong Kong
from 2001 until May 2007 when he was fired. He was arrested on
his return to Hong Kong from Beijing in 2008 after the SFC froze
HK$46.5 million of his assets.

An appeal court last year dismissed Du’s arguments that the
prosecution failed to prove he committed a crime. It cut his
jail term to six years from seven, saying Du didn’t set up
secret accounts for his trading.

The affected Citic Resources investors wouldn’t have sold
their shares to Du had they known he was engaged in illegal
insider dealing and certainly not at the same price, said SFC
Executive Director of Enforcement Mark Steward.

“This case sends a clear message that the consequences of
wrongdoing, including the costs of restoration or remediation,”
should be met by wrongdoers, he said.

The SFC’s HK$1.03 billion settlement in 2012 with Hontex
International Holdings Co., which it accused of misleading
investors in its listing prospectus, saw the company offer to
repurchase shares from about 7,700 shareholders.

The case is Securities and Futures Commission v. Du Jun,
HCMP1407/2007 in the Hong Kong Court of First Instance.